The Dow Jones Industrial Average is up nearly 26% so far this year. While the index, which consists of stocks of 30 major U.S. companies, is a widely followed indicator of the overall market’s performance, several of its components have considerably underperformed.
The Dow’s growth in recent months has largely been the result of the country’s improving economy. Unemployment continues to fall and the housing market is recovering. The market also reacted favorably to news that GDP rose at a 4.1% annualized rate during the third quarter of the year, higher than previously estimated. As a further boon to the market, interest rates remain low, driving many investors into stocks.
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However, several DJIA stocks have not performed as well as the broader stock market this year.24/7 Wall St. reviewed year-to-date share price changes for all 30 Dow Jones stocks. We identified the five companies that have posted the worst total returns, after accounting for dividends paid, for the year.
Each of these five companies has failed to deliver strong returns for different reasons. Some have been hampered by their international operations. Cisco (CSCO), which is up on the year but still among the Dow’s laggards, has seen orders drop considerably in many emerging markets. Similarly, Caterpillar's (CAT) mining business has suffered from the end of the global commodities boom. Caterpillar’s shares have returned less than 4% in the year-to-date.
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Other companies have had to contend with shifts in their own industries. McDonald’s (MCD) has been unable to create successful new offerings at the same time that chains such as Burger King (BKW) and Taco Bell have respectively announced innovative offerings such as lower-fat french fries, called “Satisfries,” and Doritos Locos Tacos. AT&T (NYSE: T) has had to respond to T-Mobile's (TMUS) pricing plans, which aim to separate service charges from phone payments, with similar plans of its own. The two companies that once intended to merge have become bitter rivals.
To identify the worst-performing stocks in the Dow Jones Industrial Average, 24/7 Wall St. performed a screen of all companies in the DJIA using FINVIZ. We then calculated total return based on adjusted-closing prices from Yahoo Finance as of December 31, 2012 and December 27, 2013. These prices account for dividends and stock splits. The DJIA is a price-weighted index, meaning the relative prices of each component affect their weighting in the index. Price as of market close on December 30, trailing price-to-earnings ratios, and forward annual dividend yields are from Yahoo Finance.
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These are the five worst performing stocks on the Dow.
5. Cisco Systems, Inc.
> Total return: 14.57%
> Price: $22.25
> Price-to-earnings ratio: 12.1
> Dividend yield: 3.1%
While Cisco shares are up this year, the company had a rough 2013. Declining orders from emerging markets contributed to the company’s weaker-than-expected revenue growth. Also, the company’s profit fell in the most recent quarter when compared to the year before. To turn things around, Cisco, which remains a giant in ethernet switches and routers, has plans to focus more on software and services. These moves, along with a plan to increase returns to shareholders through dividends and share buybacks, may be positives going forward.
4. McDonald’s Corp
> Total return: 13.45%
> Price: $97.01
> Price-to-earnings ratio: 17.5
> Dividend yield: 3.2%
Despite a total return of 13.5%, McDonald’s stock has lagged most of the Dow in 2013. The company’s recent earnings release disappointed Wall Street. Its fiscal third quarter sales missed analyst estimates. And sales at restaurants open for at least 12 months rose just 0.9% from the year before, also missing already modest expectations. Market pundits have frequently highlighted the company's struggles to successfully add new products its menu. One of McDonald’s most widely-covered attempts to innovate, chicken wings called Mighty Wings, failed to catch on with consumers due to -- at least in part -- their high price.
> Total return: 9.80%
> Price: $35.20
> Price-to-earnings ratio: 25.8
> Dividend yield: 5.2%
Although AT&T posted fairly strong results in its most recent quarter, the company's stock has returned less than 10% to shareholders this year. The telecom giant has had to deal with a changing industry. In addition to a declining landline business, AT&T has had to respond to competitor T-Mobile’s no-contract plans with similar plans of its own. These plans separate phone payments from service charges. While the stock price may have not appreciated as much as the broader market has, it does offers a 5.2% dividend yield -- attractive to many income-focused investors.
2. Caterpillar Inc.
> Total return: 3.48%
> Price: $90.87
> Price-to-earnings ratio: 17.3
> Dividend yield: 2.6%
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Caterpillar shares have returned less than 4% this year. The heavy equipment maker, which continues to suffer from declining demand for its mining equipment, in October cut its sales and earnings forecasts for 2013. Last quarter, sales in the company's construction industries and power systems segments fell in every geographic region except for Latin America, while sales in the resource industries segment fell across the board. However, the company recently received some good news. The Export-Import Bank of the United States agreed to provide financing for an Australian mining deal in exchange for a commitment to buy equipment from U.S. companies, including Caterpillar. Shares are down from a 52-week high of nearly $100 to a recent $90.87.
1. International Business Machines Corp.
> Total return: -1.50%
> Price: $186.41
> Price-to-earnings ratio: 12.9
> Dividend yield: 2.1%
This year has been filled with bad news for IBM (IBM). The company’s stock has returned -1.5%, after accounting for dividends, while the Dow has risen by more than 25%. In the third quarter IBM’s revenue declined by 4% from the year before. The company hopes to increase operating earnings to $20 per share by 2015. As of fiscal 2012, the last full year reported, the company’s operating earnings totaled $15.25 per share.To help it achieve that target, IBM recently announced a $15 billion share buyback plan, in addition to a previously authorized $5.6 billion buyback.